BI takes action to curb speculation on the rupiah

JAKARTA (JP): Bank Indonesia said on Friday it had been moving to curb speculation on the beleaguered rupiah by actively monitoring the activities of commercial banks' dealing rooms to ensure they abided by prudential rulings.

Bank Indonesia deputy governor Miranda Goeltom said these rulings included a prohibition on banks surpassing the daily 20 percent net open position limit, and opening forward dollar contracts worth more than US$5 million with non-residents.

"We will be very serious in checking and ensuring that banks abide by the rules," Miranda said on the sidelines of a hearing between the central bank and House of Representatives Commission IX for banking and the state budget.

"We can conduct snap inspections to ensure (the banks) follow the rulings. They will have to be careful.

"We have also warned them that all the rulings must be followed or they risk sanction. We sent a message to them that the spirit of each ruling must be obeyed," she said.

Currency traders said inspectors from the central bank began showing up at the dealing rooms of banks, particularly foreign banks, last week to ask questions about currency transactions and to examine documents.

The move was seen as an attempt by the central bank to help curb rupiah speculation, but central bank officials said the inspections were a routine move to ensure banks abide by the prudential regulations.

The officials, however, admitted that Bank Indonesia normally did not conduct such on-site inspections, but usually merely checked documents sent in by the banks.

Miranda said Bank Indonesia had conducted the snap inspections twice, and that the inspections had been a factor in the recent strengthening of the rupiah.

In a related development, Bank Indonesia senior deputy governor Anwar Nasution said on Friday the central bank had appealed to its counterparts overseas to help curb speculation on the rupiah abroad.

He did not provide any further details.

Many believe the rupiah has been heavily speculated on in Singapore.

The rupiah has been under pressure over the past couple of weeks, plunging to a 21-month low of Rp 9,570 against the U.S. dollar early this week as political conflicts in the country escalated.

Although the local currency gained back some ground between Tuesday and Thursday, analysts said the rupiah remained vulnerable due to the continuing domestic political uncertainty ahead of the General Session of the People's Consultative Assembly in August.

Embattled President Abdurrahman Wahid is scheduled to appear before the Assembly during the session to account for his stormy first year in office.

The rupiah closed lower at Rp 9,025 to the dollar in late trading on Friday, compared to its Thursday close of Rp 8,890, as the currency market awaited the President's written response to Thursday's questioning by the House of Representatives over his firing of two Cabinet ministers.

In other matters, Miranda expects the benchmark interest rate on the one-month Bank Indonesia SBI promissory note to fall below 12 percent by the end of this year, assuming the political situation improves after the Assembly session.

She explained that if the rupiah strengthened, the central bank would allow the interest rate to fall.

The benchmark interest rate rose for the eleventh straight week to 13.45 percent on Wednesday.(rei/bkm)